You may have already heard, but a federal judge in Texas recently struck down an Obama-era change to the Fair Labor Standards Act (FLSA) that would have significantly expanded who would qualify for overtime pay. Just how significant? Well, 4.2 million more workers would have been eligible for overtime, according to Forbes.com.
Under the rule, those earning up to $47,476 a year would have qualified for mandatory overtime pay when they worked longer than a 40-hour workweek. The previous threshold, set in 2004, was $23,660, which meant that millions of modestly paid workers were classified as “salaried” instead of “hourly” and were prevented from collecting time-and-a-half pay no matter how many hours they worked, the Kansas City Star reported.
The Judge’s Unsurprising Ruling
The ruling from U.S. District Judge Amos Mazzant was not unexpected. Mazzant had granted a preliminary injunction in November 2016 that stopped the overtime regulation from taking effect as scheduled Dec. 1 until he made a final ruling.
Many business leaders argued the rule would have greatly increased their labor costs and strained their operations. Meanwhile, for some employees, the rule had the potential to damage morale by demoting them from managers to hourly employees.
Furthermore, among employers, there was a consensus that the jump from $23,660 to $47,476 was too aggressive. It might be safe to assume that incremental steps will be the future path for raising the pay figure. We’ll see.
What This All Means
So what happens now? Well, the ruling means that the U.S. Department of Labor’s authority to adopt a salary basis test is now limited, according to the National Law Review.
Here are some key points of the takeaways highlighted in the National Law Review for employers and HR departments:
- Employers are not required to raise the salaries of exempt employees to meet the rule’s new threshold or change previously exempt employees to non-exempt status in cases in which their salaries fell below the threshold. But be careful. Employers must be aware of state wage laws, such as in California and New York, which already might require them to meet higher salary thresholds to satisfy those states’ white-collar exemptions.
- For employers who already made compensation changes or reclassified their employees in anticipation of the new rule, they should consider if changing course again would negatively affect their employees.
- Employers also cannot try to recoup previously earned wages from exempt employees whose salaries were raised to meet the higher threshold in the overtime rule. That would subject employers to violations of other laws.
The Department of Labor is seeing public comments through September 25 on whether it should consider a different salary threshold raise.
- Employers should keep that in mind as they consider planning for compensation in light of the judge’s ruling. (For instance, the threshold might be adjusted to keep track with inflation.)
- Businesses should be mindful that any successful appeal could change matters again. The 5th Circuit Court of Appeals is expected to rule this fall on a legal challenge to the judge’s original injunction.
What Your Business Should Do
Basically, you should ensure you’re in line with the above bullet points and keep up with ongoing developments that could have an impact on FLSA and your business. For right now though, everything is in an idle state. Developments will inevitably come, but, at this point, it’s speculation as to when or how significant they will be.
For the C-Suite’s opinion on wages and many more workforce management topics, get your free copy of our can’t-miss “Best-in-Class Workforce Management Insights.”